Director information hub: Cashflow
Cashflow is an indicator of your company’s health.
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If you do not have enough money coming in to pay for goods, services and taxes your company has, you are at risk of insolvency.
Why is cashflow important?
‘Cashflow’ is the term used for money coming in and going out of your company.
Not having sufficient cash is one of the most significant factors in companies failing, even when they are trading effectively.
Having ready access to cash means you can pay bills as and when they are due.
When are you likely to experience cashflow problems?
Cashflow problems can strike at any time. But typically, you are most at risk from cashflow difficulties:
- starting up
- during business growth
Starting up
When you start your company, there maybe a lot of overheads and possibly not a lot of money coming in. You might need to invest in equipment, materials, staff, training, premises or advertising.
Keeping a reserve of cash may reduce risks as you get started.
Business growth
Even successful business can experience cashflow difficulties as they grow.
If you are planning on expanding your business make sure you have funds available for unexpected as well as regular expenses.
Managing your cashflow
A key factor in managing your cashflow is making sure you are paid for goods and services on time.
Many businesses operate payment terms ranging from 30 to 90 days before invoices are paid.
Delays in getting paid are often the reason for cashflow difficulties so it’s important to always agree payment terms that suit your individual circumstances.
Factoring in possible payment delays is also something companies should consider.